Reference no: EM132952282

Pepper Corporation has used the accrual basis of accounting for several years. A review of the records, however, indicates that some expenses and revenues have been handled on a cash basis because of errors made by an inexperienced bookkeeper. Income statements prepared by the bookkeeper reported P870,000 net income for 2020 and P1,110,000 net income for 2021. Further examination of the records reveals that the following items were handled improperly.

a) Rent was received from a tenant in December 2020. The amount, P30,000, was recorded as income at that time even though the rental pertained to 2021.

b) Wages payable on December 31 have been consistently omitted from the records of that date and have been entered as expenses when paid the following year. The amounts of accruals recorded in this manner were:

December 31, 2019 P33,000
December 31, 2020 36,000
December 31, 2021 28,200

c) Invoices for office supplies purchased have been charged to expenses account when received. Inventories of supplies on hand at the end of each year have been ignored, and no entry has been made for them.

December 31, 2019 P39,000
December 31, 2020 28,200
December 31, 2021 42,600

Required:

Problem 1. Prepare the necessary journal entries to correct the above transactions as of December 31 2021 assuming the books are still open.

Problem 2. Compute the correct net income for 2020 and 2021.